Manchester City are now “richer than God”, in the memorable title of Guardian journalist David Conn’s account of its takeover by Abu Dhabi’s ruling family.
But it was not always thus. In 2002, having plumbed the depths of English football’s third tier, they suffered one of their perennial cash crises as they battled to remain in the Premier League.
Chairman David Bernstein, later to head the Football Association, had business experience with French Connection and came up with a corporate finance deal more familiar on Lombard Street than Maine Road. He enlisted Bear Stearns, the investment bank, to raise £30m by pledging future gate income so he could pay the wage bill.
Such securitisation is more common now. And it is soon to come to the masses (or at least sophisticated retail investors). Ray Ranson, who himself played for City and ended his career at Newcastle United in 1995, is the man behind the plan.
Mr Ranson sensibly turned down a coaching offer at St James’s Park to develop his sports finance and insurance broking company. It would arrange for sponsors to be protected if a Formula 1 driver was injured, and help clubs raise money against future revenues.
He merged it with the Benfield Group, founded by Matthew Harding, the then Chelsea director who later died in a helicopter crash. At Benfield, Mr Ranson facilitated more than €250m of transactions for professional clubs across Europe. Benfield, best known for reinsurance products, floated for £645m in 2003.
Mr Ranson founded sports data provider Prozone in 2004 before selling out in 2011 to concentrate on his finance business. The London Sport Exchange was established as a wholesale platform last year and has raised several hundred million pounds by matching investors and sports clubs, Mr Ranson said. This week he is opening the site to sophisticated retail investors.
“The business of sport globally is worth $150bn annually. I want to democratise it,” he says. “Sports clubs are asset rich but cash poor. They have lots of guaranteed income streams such as media rights and ticket sales.”
Sports bring in about $50bn from media rights, $50bn from ticketing, $30bn from sponsorship and $20bn from merchandise, according to PwC, the consultancy.
Some clubs are even relegation proof, he argues. “Leeds United are going to sell 10,000 season tickets a year even on a cold day in hell.”
Mr Ranson points out that the assets are uncorrelated to the global economy. “You could have Trump declare war on Iran, oil going through the roof and a run on stocks but it is not going to affect the value of Paul Pogba [the world’s most expensive player at £89m].”
Mr Ranson says he will stick to the three Rs — royalties, receivables and rent. One growth area is players’ image rights. Clubs pay up to a fifth of wages this way as it attracts lower tax. They could borrow it from investors who then collect from sponsors. “Your creditors are Nike and Samsung. They are going to pay up,” says Mr Ranson. There are 600,000 self-certified sophisticated investors who invest via their personal pension (Sipp) or Isa to trade on the platform.
The minimum investment is £1,000 and returns are likely to be 5 per cent annually. But there is a reason that sports finance is a niche product. Teams are tempted to chase glory by spending money they do not have.
James Dow, a football finance expert who also runs investment funds, said the history of the sport was littered with financial failures. “It worked for Chelsea and Manchester City but they were bailed out when rich owners arrived. It comes down to good stewardship.”
Mr Dow, a partner at Dow Schofield Watts, says he would not be recommending it to any of his clients. “There are plenty of other yield opportunities. You can invest in a bridging loan company at 8 per cent return and that is secured on property — as safe as houses.
“I would be surprised if investors thought the quality of the assets was high enough to justify the risk.”
Rangers went bust in 2012 after overborrowing against future ticket sales and failing to pay taxes. Leeds United entered administration in the early 2000s despite a fire sale of assets including its stadium and most of its squad.
But outside football the market is growing. Wasps, the rugby union club, issued a £35m bond last year. It pays 6.5 per cent and matures in 2022. It is secured on its Coventry stadium and is tradeable on the London Stock Exchange.
Lancashire county cricket club in 2014 raised £3m to build a hotel through a mini-bond paying 7 per cent.
And Mr Ranson is talking of expanding into pop groups and films. The fate of his business may depend as much on them as the beautiful, often financially ugly, game.
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